By Shaun Cox (Sage One Support Team).
If you plan or need to be VAT-registered, it’s vital that you’re on the right VAT scheme for your business. There are many schemes out there and detailed below are the four (these are generally the most commonly used) that Sage One Accounts provides.
Whether your business is below or above the current £77,000 threshold (see: www.hmrc.gov.uk/vat/start/register/) any business wanting to become VAT-registered can apply to use this scheme, VAT is calculated using the date with which the sales or purchase invoice was raised. The benefit is that you can reclaim VAT on any purchases made, regardless of whether your supplier invoices have been paid or not.
VAT Cash Accounting
Available to any business with an annual turnover below £1,350,000, it differs from the standard scheme in that VAT is not calculated until an invoice is paid.
In the short term this benefits your business’s cash flow as you’re not paying VAT for any sales that you’ve yet to receive payment for.
Of course the downside to this scheme means that until you’ve paid for your purchases, no VAT can be reclaimed from HMRC. Further information can be found here: www.hmrc.gov.uk/vat/start/schemes/cash.htm
Flat Rate Scheme (Invoice and Cash Based)
Favoured by sole traders, free lancers and small businesses that make occasional or low cost purchases (using this scheme, VAT on purchases cannot be reclaimed); the flat rate scheme was created to simply the process of paying VAT. In essence the scheme works this way: VAT is still charged at 20% of the invoice value; however VAT is paid to HMRC at a lower rate, (dependent upon your profession or trade) leaving a difference which is extra profit to the business.
Sage One allows you to choose between the two available flat rate schemes, invoice and cash based – with VAT calculated at the point of receipt. So, take a closer look at Sage One Accounts and start your FREE 30 day trial today!. We also have more information on how Sage One can help you do your VAT return online.